What are bull and bear markets? Bear and bull markets explained

That said, no two bull markets are the same, and it’s impossible to predict exactly when a bull market will end. A bull market is a period in which financial market prices are climbing or are anticipated to go up. With the cap-weighted S&P 500 index back near its four-year high valuation of 23.1 times forward earnings, critics point to overvaluation as an impediment to further price gains. However, valuation is not nearly as much of a concern if one strips away the influence of the largest stocks.

Phases of a bull market

For example, you might invest $100 weekly, regardless of what the stock market is doing. By doing this, you’re buying more shares when the price is low and fewer shares when the price is high. Over time, this can help to average out the cost of your investment.

What Lasts Longer, a Bull Market or a Bear Market?

With features like real-time data, customizable alerts, and the Income Hub, Public helps you track your earnings and forecast potential returns. Whether you’re diversifying your portfolio or staying informed about market shifts, the platform provides resources to support your investment decisions. This bull market was one of the longest in U.S. history, spanning nearly two decades. It was fueled by economic reforms, technological advancements, and a strong corporate earnings environment. average true range At this stage, the bull market is well underway, and confidence is at its highest. Some investors may start wondering how much longer the rally can last.

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If you are holding a bunch of speculative stocks and the market goes south, you’ll see outsized losses. Some of those losses may be temporary, but a downturn could also permanently change the outlook for smaller, less established companies. Growth stocks and sectors appreciate faster than peers and the overall market. Many, but not all, growth stocks are young, innovative companies that are using technology to create efficiencies or solve global issues (such as nonrenewable energy dependence). When the line is sloping downwards, it typically indicates that the market is in a bearish phase.

The chart below shows how bull markets can last for years, but the average growth remains around 6% throughout. Bull markets can last several months to years, depending on economic conditions and market sentiment. One of the best ways to look at the market is to consider it a fractal, where smaller-scale events are exact copies of larger-scale events. So, within this ever-growing bullish market, you can stumble upon smaller periods of bullish trends followed by bearish ones, and then the cycle repeats itself. However, no matter how long a bullish trend gets, it always ends with a bearish one.

Difference between a bull market and bear market

Understanding the dynamics of a bull market is essential for investors, as it presents opportunities to maximize returns while also requiring careful strategies to manage risks effectively. Bull markets tend to be longer than bear markets, although the duration can vary. Using the S&P 500 as a benchmark, since 1942, the average bull market lasted 4.2 years while the average bear market lasted 11.1 months. The average cumulative return of the bull markets was 148.9% and the average cumulative loss of the bear markets was -31.7%. Since 1942, there have been a total of 16 bull markets and 15 bear markets.

It is not intended to constitute investment advice or any other kind of professional advice and should not be relied upon as such. Before taking action based on any such information, we encourage you to consult with the appropriate professionals. We do not endorse any third parties referenced within the article. Market and economic views are subject to change without notice and may be untimely when presented here. Do not infer or assume that any securities, sectors or markets described in this article were or will be profitable.

Phase 2: Public Participation

Things abruptly ended when the Covid-19 pandemic-induced shock caused a major market crash in February 2020. Even though the bear market which followed was short-lived, the 2020 crash signaled a Covid-19 driven recession. However, already on the 7th of April 2020, markets re-entered a bull market showing signs of recovery. As a comparison, in a recession, money usage by banks is curbed, and interest rates of loans go up, limiting investments and leading to a bear market. Since the financial crisis of 2008, the stock market has been growing. Despite some sharp decreases and market corrections along the way, prices reached an overall high.

• In addition, investors may benefit from taking a short position in a bear market and profiting from falling prices.
• A market is usually not considered a true “bear” market unless it has fallen 20% or more from recent highs.
• This rise usually coincides with signs that prices will continue to grow.
• It’s generally a good time to buy stocks, as they historically perform well during a bull run.
• For example, the overvaluation of tech stocks during the Internet boom caused a dot-com bubble between 1998 and 2000.
• When interest rates are low, borrowing becomes less expensive for both consumers and businesses.

However, investing in a bear market can also present opportunities, as stock prices are generally lower and may offer attractive entry points for long-term investors. A bull market is an extended period of time when stock prices rise and investors are optimistic. Bull markets can last for months or even years, and stocks tend to outperform other investments like bonds. In the financial markets, such as stocks, when prices have generally been increasing or are expected to increase, a bull market exists. Bull markets commonly refer to the stock market but can be applied to anything that is traded, such as bonds, real estate, currencies, and commodities. Bull markets may be evident during periods of economic growth when GDP rises and unemployment falls, and can exist over extended periods where equity prices rise over months or years.

In some cases, the momentum builds on itself—rising prices attract more investors, which may lead to further gains. However, it’s important to recognize that market sentiment is influenced by many variables and may change quickly based on new information or global events. A bull market is a period of rising prices, particularly one where the rise is sustained over time, often with a stock or other asset repeatedly setting new highs. A bull market can refer to the price action on a single security or for a specific market as a whole. The end of a bull market is when the upward trend is followed by a bear market (a decline of at least 20%) or a correction (a 10% drop).

• If you had $100,000 invested in a low-fee S&P 500 ETF last October that position is now worth about $120,000.
• Being aware of how you respond during a bull market may help you stay more focused, even when market momentum is high.
• Output from Alpha should not be construed as investment research or recommendations, and should not serve as the basis for any investment decision.
• A bull market is characterized by a sustained increase in major market indexes like the S&P 500, Nasdaq, and Dow Jones.
• Therefore, it’s best to think long-term, thoroughly research potential investment opportunities, frequently rebalance your portfolio and diversify your asset allocation to match your goals.

Meanwhile, none of this will make the Federal Reserve’s job any easier as it tries to thread the needle between the risk of reinflation and economic stagnation. With the letters beginning to go out today, many of our trading partners are reportedly working around the clock to secure exemptions or cap their tariff rates before the deadlines. As to “setting the rates,” countries now face a new potential 10% levy. If you do increase your stock exposure, add equities from multiple industries. Industry diversification protects you from sector-specific weakness and gives you access to sector-specific strength.

Bull vs. Bear Markets: An Overview

In a growing economy, banks tend to lower their interest rates on loans, and it encourages business and entrepreneurial activity and allows more companies to expand. When central banks like the United States Federal Reserve lower their interest rates, stocks become an attractive investment opportunity for more people. An overall bull market may encounter dips along the road, referred to as market corrections, but in general, the underlying price trend will continue to rise. A number of indicators might point to the fact that we are in a bull market, and thus the following market characteristics are more likely to be seen during a bull market. Top-line growth of top-line revenue (TLR) refers to a business’s gross turnover or revenues.

Follow the four strategies below to capitalize on rising stock prices. Three major stock market indexes are Dow Jones Industrial Average, the S&P 500, and the NASDAQ. Usually, all three would show signs of rising stock market indexes simultaneously, driven by economic health and investor sentiment. After several investors bought stocks in dot-com companies, supply began to overtake demand. Share prices dropped as the Internet created buzz made investors hedge their bets and pour money into dot-com tech start-ups, which might have looked better on paper than in reality. Businesses went public without a proper business plan, product, or record of profitability yet still managed to secure investments.